Supreme Court Tramples on Property Rights

In June 2005, the Supreme Court rendered its infamous Kelo v. New Londondecision. The Court's 5-4 majority, despite the clear language of the Fifth Amendment, decided that "public use" (roads, bridges, etc.) really means "public purpose" (anything the government wants).

In the absence of state or local laws to the contrary, the ruling in effect green-lighted whimsical use of the government's power of eminent domain nationwide.

What has happened in New London, Connecticut since the Kelo ruling is an object lesson in why the Supremes were wrong.

Within weeks, the New London Development Corporation (NLDC) demonstrated the inherent danger of allowing governments to have so much power, as the NLDC became a tyrant (excerpt was originally in a local Connecticut paper in July 2005):

New London is claiming that the affected homeowners were living on city land for the duration of the lawsuit and owe back rent. It's a new definition of chutzpah: Confiscate land and charge back rent for the years the owners fought confiscation.

In some cases, their debt could amount to hundreds of thousands of dollars. Moreover, the homeowners are being offered buyouts based on the market rate as it was in 2000.

The NLDC didn't let the national outrage that built up in response to its threats affect it. In September 2005, the Kelo holdouts received eviction notices.

The NLDC's heavyhandedness was so brazen that Connecticut Governor Jodi Rell stepped in, threatening to withhold state development money from the project. The NLDC finally withdrew the eviction notices.

New London's City Council made a pretense of being shocked -- shocked! -- that the NLDC would engage in such outrageous behavior. After much political maneuvering, and yet another intervention by the Governor, there was a management change at the NLDC.

Many disgruntled city residents saw all of this and decided to do something. In just weeks, they formed a new party, One New London. A primary party goal was to engineer a satisfactory and agreeable settlement with the Kelo holdouts. The party put up four candidates in November for the seven-seat Council. Two of its candidates won seats; a third failed to beat the incumbent by just 19 votes.

You would think that such a clear message of dissatisfaction would have had an effect on Council's five remaining members (four Democrats, one Republican). You would be incorrect.

In May 2006, Council, in a 5-2 vote, told the remaining Kelo holdouts that they could stay -- but that the city would own their properties, and the residents would have to pay rent. The offer was, of course, summarily rejected. Susette Kelo was quoted as saying, "The ongoing battle of the last eight years has not been to allow us to live in our homes and pay rent to the city of New London until we die."

The holdouts countered with a proposal to have their homes moved into a consolidated space that would not get in the way of development efforts -- as long as they retained clear title to those homes. Showing clear resolve to carry their tyranny through to the end, Council rejected the idea.

As pressure mounted, all but two of the holdouts settled. In early June, Council, again by 5-2, voted to evict them, and even resurrected the back rent and occupancy claims that had caused such a furor the previous fall.

The Governor had to ride to the rescue one final time to prevent a bulldozer spectacle. Finally, on June 30, all parties settled.

It has now been nearly 21 months since that settlement. What has happened in the area where the Kelo holdouts once lived?

Absolutely nothing.

You'll love the developer's plans. The New London Day (link requires registration, and a paid subscription after a week), tells us that it involves "high-end" one-bedroom apartments, two-bedroom apartments, and two-bedroom townhouse-style units.

So there will be apartments and some owner-occupied housing where there were once houses.

Faced with a tight lending climate, the Corcoran Jennison company has asked the Federal Housing Authority to back an $11.5 million loan to fund the long-delayed construction of housing on the Fort Trumbull peninsula.

So one government has taken land from its rightful owners. That government's selected developer wants to pass on the risk involved in the project to another government (Uncle Sam) to, maybe, get the project off the ground after nearly two years.

The arrogant behavior of the powers that be after the Kelo ruling, combined with what has happened (actually, not happened) with the property involved in the nearly two years since the settlement, should not be lost on the Supreme Court when, as inevitably will happen, another eminent-domain case comes before it.

Tom Blumer is a CPA based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com